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Mean-risk optimal decision of a steel company under emission control

Author

Listed:
  • František Zapletal

    (VSB - Technical University of Ostrava)

  • Martin Šmíd

    (The Institute of Information Theory and Automation of the CAS)

Abstract

We propose a mean-risk decision model for a steel company facing emission limits and trading with emission allowances. The model is calibrated using data of a real-life steel company and is subsequently solved for five different scenarios of demand and different levels of risk aversion. It is found that while the limits are never reached, permit trading influences the decision to a great extent, especially given extremely low or extremely high demand, i.e., when large amounts of permits need to be traded. We demonstrate that the risk caused by emission trading may increase not only with an increasing demand but also when the demand is low and a great amount of allowances must be sold.

Suggested Citation

  • František Zapletal & Martin Šmíd, 2016. "Mean-risk optimal decision of a steel company under emission control," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 24(2), pages 435-454, June.
    • Handle: RePEc:spr:cejnor:v:24:y:2016:i:2:d:10.1007_s10100-015-0430-7
    DOI: 10.1007/s10100-015-0430-7
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    References listed on IDEAS

    as
    1. Xiting Gong & Sean X. Zhou, 2013. "Optimal Production Planning with Emissions Trading," Operations Research, INFORMS, vol. 61(4), pages 908-924, August.
    2. Letmathe, Peter & Balakrishnan, Nagraj, 2005. "Environmental considerations on the optimal product mix," European Journal of Operational Research, Elsevier, vol. 167(2), pages 398-412, December.
    3. Raskin, Rob & Cochran, Mark J., 1986. "Interpretations And Transformations Of Scale For The Pratt-Arrow Absolute Risk Aversion Coefficient: Implications For Generalized Stochastic Dominance," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 11(2), pages 1-7, December.
    4. Haim Levy, 2004. "Prospect Theory and Mean-Variance Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 1015-1041.
    5. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    6. Zhang, Bin & Xu, Liang, 2013. "Multi-item production planning with carbon cap and trade mechanism," International Journal of Production Economics, Elsevier, vol. 144(1), pages 118-127.
    7. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
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    Cited by:

    1. František Zapletal & Martin Šmíd & Miloš Kopa, 2020. "Multi-stage emissions management of a steel company," Annals of Operations Research, Springer, vol. 292(2), pages 735-751, September.
    2. Petr Fiala & Josef Jablonsky, 2016. "Special issue of the Czech society for operations research," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 24(2), pages 263-265, June.

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